When the bank levy was introduced in 2010, it was set at 0.05% of the value of UK banks’ debts above £20bn. The idea was to discourage banks from risky, debt-fuelled lending, rather than lending from retail deposits, which are exempt. It didn’t exactly hurt when it came to reducing the deficit either.
At the time, few complained. After all, the banks had caused the crisis that led to painful austerity measures in the first place. Surely they deserved to pay a higher share, especially when otherwise they would have benefitted from the corporation tax cut?
Since then, the levy has been increased nine times, most recently in March’s budget, when it was set at 0.21%. Quadrupling the levy may have proved popular, and it will raise over £3bn a year for the Exchequer at the current rate. But such actions were always bound to have consequences.
At HSBC’s annual meeting in London today, chairman Douglas Flint will announce that Britain’s largest bank is considering moving its headquarters away from the UK – and its banker-bashing tax regime.
‘As part of the broader strategic review taking place, the board has now asked management to commence work to look at where the best place is for HSBC to be headquartered in this new environment,’ Flint will say.
Could you blame him? Flint said in HSBC’s annual report in February that the levy cost it $1.1bn (£737m) in 2014. That’s over a quarter of its overall tax bill, and is equivalent to 5.9% of its $18.7bn profit. He also pointed out that 58% of levy paid relates to activity outside of the UK, meaning in some cases HSBC is being taxed twice.
HSBC leaving Britain would be a painful experience. Not only would the chancellor (whoever that may be) lose that billion or so in tax revenue, but also the City would lose one of its major players – and at the least hundreds of jobs. HSBC isn’t the only bank considering a move either. Standard Chartered has also faced calls from its investors to leave for Hong Kong or Singapore.
Both these banks of course do most of their business in Asia, so there’s a rationale to move east regardless of the regulatory system in place here. But the levy is clearly grating. So too is the threat of an EU Brexit and the requirement to ‘ring fence’ retail banking from investment banking in the UK.
HSBC is apparently considering spinning off its UK retail division entirely as a result, which would arguably reduce the need for the global bank to be based here. HSBC’s move is not in any sense guaranteed, but it’s no idle threat either. Importantly, investors seem keen on the idea. HSBC’s share price rose 3.2% to 632p on the announcement.
London’s shared primacy in the global financial system (with New York) is in many respects an accident of history, the result of Britain’s preeminent role in the 19th century and its convenient location between Asia and the States. This does not mean, however, that it can’t lose that top position if the state pushes the banks too far.
Given that George Osborne has said the levy’s ‘here to stay’ and both Labour and the Lib Dems want to increase it, that’s starting to look like a genuine possibility.